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Question 1

Suppose that the required reserve ratio (R) is 9 percent and that banks do not hold any excess reserves.

What is money multiplier, given this situation?

Hint

Question 2

Suppose that the Fed conducts a $260 million open market purchase of government bonds.

In addition, suppose that the required reserve ratio is 17 percent and that banks do not hold any excess reserves.

What is the effect on the money supply? More precisely, by how much will the money supply increase?

Hint

Question 3

Suppose that the Fed sell $350 million of government bonds.

In addition, suppose that the required reserve ratio (R) is 40 percent and that banks do not hold any excess reserves.

What is money multiplier?

Hint

Question 4

Suppose that the Fed sells $420 million of government bonds.

In addition, suppose that the required reserve ratio is 28 percent and that banks do not hold any excess reserves.

What is the effect on the money supply? More precisely, by how much will the money supply change?

Hint

Question 5

Assume that the banking system has total reserves of $841 billion.

Assume also that required reserves are 29 percent and that banks do not hold any excess reserves and households hold no currency.

What is the size of the M1 money supply?

Hint

Question 6

Assume that the banking system has total reserves of $174 billion.

Assume also that required reserves are 6 percent and that banks do not hold any excess reserves and households hold no currency.

Now suppose that the Fed decreased the required reserves to 4.8.

What is the new multiplier?

Hint

Question 7

Assume that the banking system has total reserves of $1260 billion.

Assume also that required reserves are 42 percent and that banks do not hold any excess reserves and households hold no currency.

Now suppose that the Fed decreases the required reserves to 33.6.

What is the level of excess reserves? Make sure to include a negative sign if necessary.

Hint

Question 8

Assume that the banking system has total reserves of $266 billion.

Assume also that required reserves are 19 percent and that banks do not hold any excess reserves and households hold no currency.

Now suppose that the Fed decreased the required reserves to 15.2.

As a result of this new policy, by how much has the money supply increased?

Hint

Question 9

Assume that the banking system has total reserves of $221 billion.

Assume also that required reserves are 13 percent and that banks do not hold any excess reserves and households hold no currency.

What is the level of deposits?

Hint

Question 10

Assume that the banking system has total reserves of $1107 billion.

Assume also that required reserves are 41 percent and that banks do not hold any excess reserves and households hold no currency.

Now suppose that the Fed increased the required reserves to 49.2.

What is the new multiplier?

Hint

Question 11

Assume that the banking system has total reserves of $264 billion.

Assume also that required reserves are 24 percent and that banks do not hold any excess reserves and households hold no currency.

Now suppose that the Fed increased the required reserves to 28.8.

What is the level of excess reserves? Make sure to include a negative sign if necessary.

Hint

Question 12

Assume that the banking system has total reserves of $1350 billion.

Assume also that required reserves are 45 percent and that banks do not hold any excess reserves and households hold no currency.

Now suppose that the Fed increased the required reserves to 54.

As a result of this new policy, by how much has the money supply changed?

Hint